Ohio Bankruptcy Court Strikes Down Employee Retention Plan for Unfairly Excluding Union-Represented Employees

By By Peter D. DeChiara

pdechiara@cwsny.com

Posted October 2018

Can a bankrupt employer’s proposed bonus plan exclude employees just because they are represented by a union? A thoughtful decision by U.S. bankruptcy judge Alan Koschik, of the Northern District of Ohio, recently concluded that such a plan unfairly discriminates and cannot be approved. See In re FirstEnergy Solutions, Corp., Case No. 18-50757 (Bankr. N.D. Ohio Sept. 18, 2018)

In FirstEnergy, the debtors were planning to shut down nuclear reactors that they operated at three power plants. In the course of their Chapter 11 proceedings, they proposed a $100 million bonus plan intended to keep key employees on the job during the long shutdown process. The bonus plan included most of the debtors’ non-union employees but excluded their entire unionized workforce. Indeed, the debtors included in the plan non-union “reactor operators” at one of its plants, arguing that they were highly marketable, and thus a “flight risk,” and would be hard to replace if they left. But the plan excluded unionized reactor operators at the debtors’ other two plants who were equally critical to the shutdown process. Locals of the International Brotherhood of Electrical Workers and the Utility Workers Union, which represented debtors’ bargaining unit employees, challenged the bonus plan.

The court refused to approve the plan, concluding that it discriminated unfairly against unionized workers. Judge Koschik rejected the companies’ attempt to justify the exclusion of the unionized reactor operators by pointing to the benefits they received under their collective bargaining agreement. The judge explained that those benefits would not be “of material value” after the shutdown process ended and the workers lost their jobs. The judge also rejected the debtors’ argument — which he found to be based on nothing more than “stereotypes” — that the union workers were “locals” to the area where they worked and thus not inclined to move to take jobs elsewhere.

The court did not go so far as to embrace the unions’ position that all bargaining unit employees should be included in the bonus plan, stating that it was correct to provide retention bonuses only for “critical employees.” But because the plan discriminated unfairly at least as to some union employees, Judge Koschik concluded, the plan flunked the reasonable business judgment test and was not justified by the facts and circumstances of the case. The judge encouraged the debtors, if they decided to revise the plan, to seek input from the unions.

Judge Koschik deserves praise for a decision that is not only strong in its analysis, but that takes seriously a demand for equitable treatment voiced by labor unions, a demand that is all too often lost in corporate bankruptcy proceedings.